Businessweek Archives

Cyberspace

February 26, 1995

Special Report

CYBERSPACE

By now, the vision of our future in cyberspace is pretty familiar. From Al Gore and Newt Gingrich to Bill Gates and John Malone, dozens of academics, business leaders, and politicians have painted a detailed picture of the coming digital millennium. We'll work, shop, chat, educate, and amuse ourselves in a new online realm that will put every conceivable form of information--from a stock report to a digitized, interactive movie--instantly at our fingertips. Already, millions of people who collaborate across computer networks or log on to commercial online services or prowl the vast Internet are seeing a glimmer of how the vision will come to life.

They're probably seeing something else as well: Despite all the high-speed networks and powerful PCs to take you there, cyberspace--especially the uncharted expanse known as the Internet--is still not a safe, hospitable, and compelling environment for businesses and consumers. Often, it seems a harsh and unforgiving place where, with a misplaced keystroke, you can become hopelessly lost, where the information you thought you would find isn't where it should be, and where it's all too easy for villains to snatch your digital valuables--by ripping off your work or stealing your credit-card information.

What will change all that? In a word: software. There is an enormous need for "enabling" software--to speed up transmission of huge video files, to guide you through hundreds of TV channels, to manage thousands of online transactions, and to make sure those transactions are secure. "The solution to everything on the Internet is software," says Edward J. Hogan, senior vice-president at MasterCard International Inc., which expects its member banks to start doing business on the Net this year. "Software is king."

"LIKE THE LAND RUSH." The great cyberspace software race has begun. At giant corporations and in basements, the brightest minds in software are working on programs that will make it possible to move vast amounts of digital information, distribute it efficiently to the correct addresses, and make it all simple enough for nontechies to manage. From simple graphical interfaces to such cutting-edge concepts as software agents, programmers are harnessing the power of cyberspace--to help businesses and consumers meet in an electronic marketplace and to create the information systems for the virtual corporations--and communities--of the 21st century.

The players that come up with these programs could wind up at the head of a new world order--where computing, entertainment, and communications merge. "It's like the land rush in Oklahoma," says Lawrence J. Ellison, chairman of Oracle Corp., the No.2 software maker. "The best spot in the valley goes to the one who gets there first." Ellison, who has launched ambitious efforts to develop software for everything from serving up video on demand to home shopping and information searching, is determined to get there before No.1 Microsoft Corp. And Microsoft Chairman William H. Gates III is just as determined to extend his software reign into the Information Superhighway era. Microsoft is spending more than $150 million a year on developing all sorts of software for entertainment and information networks.

Or neither could prevail. The battle for cyberspace presents a fresh opportunity--for startups as well as for some of high tech's most venerable names. Both IBM and Digital Equipment Corp., for example, are scrambling to redeploy their software expertise for the I-way. "Software tools that collect information, organize it, and make it readily available will be perhaps one of the biggest businesses on the Information Superhighway," says William D. Strecker, vice-president of Digital's Advanced Technology group.

Lotus Development Corp., whose Notes program is now used by corporations to coordinate the activities of workers across a network, is also well positioned to help Corporate America move into cyberspace. The company is already working with AT&T on Network Notes, which will run on the phone giant's long-distance system, and developing connections between Notes and the Internet. "It's a period of dramatic change and innovation," says Erik Grimmelmann, marketing vice-president for business multimedia infrastructure at AT&T. "Inevitably, some of those on top will fall."

USER-FRIENDLY FACADE. The first leg of the race is well under way. It's the effort to create the kind of "user interface" that will bring millions of ordinary people into cyberspace. This ranges from programs for your desktop computer that simplify connections to your corporate electronic-mail system to software to whisk you across the Net to shop in virtual malls, visit cybershowrooms, and ring up bills at the electronic newsstand. Already, software makeovers of America Online Inc., on which BUSINESS WEEK is electronically available, and Prodigy Services Co. have converted those commercial services into a relatively user-friendly, if limited, window into cyberspace.

The most critical need, however, is to create a facade of user-friendly software for the globe-spanning Internet. A jumble of interlinked networks, the Internet includes some 4 million "server" computers, housing incalculable volumes of all sorts of information. But because there is no central control over the Net, there is also no master index. That has kept the Net largely a playground for the techno-intelligentsia who use arcane programs such as Gopher, Archie, and FTP to dig out what's hidden in all those databases.

Now, the software is emerging that will make it possible for ordinary consumers and businesspeople to do the same--making the Internet the all-purpose route into cyberspace. The big breakthrough began in 1993 with the creation of an Internet subnetwork called the World Wide Web--really just a clever software scheme for imposing order over the mass of free-form information on the Net by organizing it in easily understood "pages."

What makes the Web such a powerful cyberhelper is a software technique known as hyperlinking. When composing a Web page, an author can create hyperlinks--words that appear in bold type and indicate a shortcut to some other information. Using a program known as a Web browser on your PC, you can read pages stored on any Web computer. Say you're reading a page that describes recent discoveries about allergies. You see the word "antigen" in bold type. Using your computer mouse, you click on the word and--without any further effort on your part--you are transferred to another Web page that tells you what an antigen is. That page could be in the system where the first page was or in another computer thousands of miles away.

THE SURGE IN BROWSERS. The Web is emerging as the laboratory for learning how to do business in cyberspace. Companies of all stripes are experimenting. Club Mediterranee has Web pages describing its resorts. IBM has posted its annual report. And on Feb. 14, Fidelity Investments launched a "home page" with descriptions of its funds, a worksheet for college planning, and a sample of its personal-finance software that Internauts can download. Log on to the Web computer of Philadelphia-based CDnow! and you can order from its online catalog. Click on an album title, and see the names of the songs. Another hyperlink will get you to reviews. With a click of the mouse, you can toss an album into your "shopping cart." When you're done, you order by sending your credit-card number over the Net.

As Web use has exploded--there are now 27,000 Web sites, and the population is doubling every 53 days, according to Sun Microsystems Inc.--Web browsers have become an overnight software sensation. Millions of copies of Mosaic, the original Web browser, have been distributed for free over the Net. Still, companies are piling into the browser business--often with upgrades of Mosaic. Spry Inc., a Seattle-based startup, sells Internet-In-A-Box. Quarterdeck Office Systems Inc., a PC software maker looking for new life, sells a series of Web products, and startup Netscape Inc. offers Netscape Navigator, written by Mosaic creator Mark Andreesen. At the same time, big players, ranging from Prodigy and America Online to Microsoft and Novell, are building Web browsing into their software.

The Internet is not the only focus of the software race. Virtually all major computer and software makers are working on interface programs to help office workers move smoothly from their desktops to corporate networks and beyond. One approach is the "universal browser," intended to mask the boundaries between various computers and networks. Instead of having to figure out where the information is buried--and then trying to somehow connect with the right system--a computer user will simply specify what kind of information is needed. "Where it comes from, how it got there, will recede into the background," says AT&T's Grimmelmann.

Novell Inc., the leading supplier of software to run local-area networks, is testing a universal browser code-named Corsair. It uses cartoon-like pictures to help you get your bearings. For example, a screen depicting an office shows a desk, Rolodex, phone, mailbox, and file cabinets. When you're going beyond your own organization, you click on the office window and are transported to a screen with a colorful picture of the world outside your virtual window: a leafy village with a shopping center, a city hall, a bank, and a business park. Clicking on the business park might call up a yellow-pages listing that displays information services you can connect to.

Similar programs are under development across the computer industry. IBM is working on one for its OS/2 operating system, and Computer Associates International Inc. is putting the finishing touches on a package called CA-Simply Village. In addition to three-dimensional graphics of familiar images, Simply Village has speaking cartoon characters to help guide you through using a variety of consumer services.

Microsoft's approach is embodied in Windows 95, the new Microsoft operating system due out this August. It has built-in links to the Internet and to the forthcoming Microsoft Network, an online service. In addition, it's organized to help workers move seamlessly between files on a PC and those on a local-area network or on a computer on the other side of the ocean--all through a series of screen icons. Windows 95 also includes a technology called Object Linking & Embedding (OLE), which is similar to hyperlinking.

So far, the hottest startup in the cybersoftware race is General Magic Inc. Its initial public offering came out at $14 on Feb. 10 and traded as high as $34 that day--despite five years of losses and scant revenue. What has investors so excited is a pair of products that could greatly simplify getting around in the online world. Magic Cap, designed initially for use on handheld gadgets, uses a series of metaphorical scenes: your office, the hallway outside, and a downtown. By simply pressing on the icon representing an out box, you can send a memo to a dozen co-workers on a mailing list via a wireless data network. Magic Cap is being used by Motorola Inc. and Sony Corp. in their personal digital assistants.

But it's General Magic's other product, Telescript, that really shows promise. A software language for creating applications on a network, Telescript includes a new technology called software agents. Agents can act on their own to get something done for you. So, for example, an agent could be programmed to automatically scour the Net for the best deal on, say, a 30-year fixed mortgage--and order up an application form. The first Telescript application will be PersonaLink, an "intelligent" messaging service being launched by General Magic backer AT&T. While AT&T says the system will eventually handle such tasks as doing your online shopping, at first the agents will do simpler chores, such as routing E-mail messages.

"NOT FOR THE FAINT OF HEART." For now, creating electronic shopping assistants isn't a top priority. What's needed first is software to keep people from drowning as they sift through a sea of information to find exactly what they want. Every day, that sea grows deeper: There are now some 5 million documents stored on Web servers, estimates Michael Mauldin, a research computer scientist at Carnegie Mellon University. That figure is doubling every six months to a year, he figures.

At Carnegie Mellon, Mauldin and his team have created what he calls a software "robot." Running simultaneously across four powerful workstations, the system is called Lycos, after the Lycosidae spider, known for pursuing its prey relentlessly. Lycos goes out onto the Web and catalogs the continually expanding number of documents posted there by scanning them and creating an abstract containing the title, first 20 lines of text, and the 100 most important words. Since beginning its mission last June, Lycos has cataloged 270,000 documents--a mere 5% of what's on the Net. Mauldin says it will take 12 computers running Lycos to keep pace with the growth of Internet information.

Oracle, the top supplier of database programs for minicomputers, is also working on ways for ordinary folk to find needles in digital haystacks. Last fall, it announced plans to adapt a "natural language" search program called Context for the Internet. Using simple English--rather than stilted computerese--you can ask Context to search the entire Net for specific information.

Context is only a tiny part of Oracle's I-way effort. Its primary target is the software to run video "servers"--powerful computers with massive arrays of disk drives that can run interactive-TV shopping channels or dish out video on demand across cable-TV or phone networks. So far, the company has contracts with British Telecom, Bell Atlantic, and Time Warner to build servers for interactive-TV trials. At the other end of the line, Ellison is looking at interface software: One reason he has considered mounting a takeover of Apple Computer Inc., say Ellison associates, is that he believes Macintosh software could be the basis for an I-way interface--for computers and cable-TV set-top boxes.

Ellison is also pushing his company into the business of selling software that will create digital content. The first program, Media Objects, is now in prerelease testing. Another project, the World Wide Web Kit, is aimed at helping current customers link their Oracle databases to Web pages.

Although it got a later start, Microsoft is attempting to match virtually every Oracle move in I-way software. While Oracle has snagged the biggest phone contracts, Microsoft has lined up cable giant Tele-Communications Inc. and Rogers Cable in Canada. TCI plans to use Tiger, a Microsoft video-server program, to provide movies on demand. Microsoft is also developing channel-surfing software for set-top boxes and software "tools" to help businesses create content for the Microsoft Network.

The high-stakes contest to build software for interactive TV has attracted other players as well. Hewlett-Packard, DEC, Silicon Graphics, Sun, IBM, and Sybase are all betting chunks of their research and development budgets. "The race is going to be won by those people who have guts and are willing to spend money now," says Andrew T. Eiseman, head of technology for U S West Communications Broadband & Multimedia Services, which is testing a DEC server and set-top boxes from game maker 3DO Co. "This is not for the faint of heart."

While the big guys slug it out in interfaces, information retrieval, and video-server programs, there are lots of niches for others. Take eShop, a four-year-old San Mateo (Calif.) startup. It has come up with three programs to help merchants set up their own distinctive virtual stores. One creates an electronic storefront. Another is a "warehouse" package that manages product and customer information and routes transactions. And the third is a browser for electronic catalogs--whether they're on the Web or on interactive TV. eShop plans to take a cut of the revenues from retailers and has licensed its software to AT&T, which is developing a shopping service for its PersonaLink service. Another client is Tower Records, which is testing an electronic shopping system.

PERSONAL NEWS. Software to help publishers go online is another thriving niche. One of the leaders in electronic publishing software is WAIS (Wide Area Information Servers). Its WAISserver system will handle billing, registration, advertising tracking, and just about anything else a publisher needs. WAIS also offers intelligent-agent and information-searching software, which WAIS president Brewster Kahle helped develop at supercomputer maker Thinking Machines Corp. Customers include Dow Jones & Co., which is testing an electronic version of The Wall Street Journal that lets subscribers specify what news they want to get--by selecting company names and sections of the regular paper. "This is the start of the personal news service," says Kahle.

Before publishers--or anybody else--start doing a lot of business in cyberspace, there's another software issue to deal with. How do you make sure information used in electronic transactions can't be tampered with? How can a seller be sure a virtual customer is who he claims to be? And what consumer wants to trust the network with a credit-card number?

Partly because there have been few answers, business volume across the Net has been modest. Roughly $200 million worth of credit-card transactions took place over the Internet last year--barely a drop in the bucket: Visa alone rang up $640 billion in charges in 1994. And most Internet purchases were offline--the buyer browsed the Net then ordered by phone. For good reason: "Passing your credit-card number over the Internet today is like getting dressed with the light on when it's dark outside," says Richard K. Crone, a senior manager in KPMG Peat Marwick's financial-services consulting practice. That's holding back electronic commerce in general, says Richard M. Lonergan, senior vice-president for point of transaction at Visa International.

Recent security breaches on the Internet have done nothing to help. "This could potentially be a fantasy for hackers worldwide," says Joel Friedman, a specialist in banks and credit cards at Andersen Consulting. And the efficiency of the Net increases the potential damage: a cybersnoop could fire off dozens--even hundreds--of phony transactions in just a few minutes. "Consumers are hearing it's insecure, so stay away from it," says MasterCard's Hogan. "We have to go through a PR effort to undo that."

SECURITY TEST. Software companies, banks, and researchers may have the solution in hand. There are at least a dozen initiatives under way (page 80). Microsoft is working on several secure payment systems, including one with Visa for credit-card transactions. Netscape has built encryption into its browser and Web-server software. CyberCash, a Vienna (Va.) startup, is working with banks such as Wells Fargo & Co. on electronic payment systems.

Many of these systems will be tested this year. Wells Fargo Bank, for example, plans to start a secure credit-card pilot next month with 10 to 20 merchants. The system will go "live" in April, available to any merchant doing business with Wells. The bank also plans to offer debit cards on the Net. MasterCard says it will test a secure credit-card service on the Net by midyear and hopes to offer it commercially by fall. Visa and Microsoft, meanwhile, plan to have a payment system in place by yearend. And DigiCash, a Dutch startup, is working on something called ecash, a sort of digital currency that will be useful for small-scale purchases--from 5 cents to $5--on the Net.

Whether it's digital cash, debit cards, or credit cards, the new electronic payment systems all will be secured by some form of encryption--software algorithms that scramble digital bits of information so they cannot be read by unauthorized eyes. The most promising form is the "public-key" method and the most popular public-key system is being licensed by RSA Data Security Inc. (page 86).

One by one, as I-way software issues are tackled, the I-way software business could disappear. How? All the various programs needed to create, move, and view digital "content" will be built into other software. That's already happening with HTML (hypertext markup language), the software format used to create Web pages. The leading makers of word processing programs--Microsoft and WordPerfect Corp., a division of Novell--have announced plans to add HTML to their packages. And Lotus' new InterNotes Net Publisher converts Notes documents to the Web format. Even IBM is reworking its mainframe database, DB2. The new DB2 World Wide Web will provide access to corporate data from the Internet.

In fact, one measure of the success of the cybersoftware effort will be how quickly the new programs seem to vanish. If businesses are to operate efficiently online and consumers are to enjoy their time in cyberspace, the programming that makes it all possible must be invisible. Only then will those visions of life in cyberspace come true.

COMPRESSION

Until networks get more powerful, compression techniques are vital

for squeezing hefty video, graphics, and text files for faster transmission over the Net.

USER INTERFACES

Browsers and navigational aids will help sift through the sea of information, helping you find what you are looking for, whether from a PC, a wireless device, or your TV. Software "agents," sort of personal assistants, will go out on the Net and fetch stock quotes or the best deal on airfares to Hawaii.

SECURITY

Encryption technology scrambles digital signals to help keep confidential data, such as credit-card numbers, from cybersnoops.

VIDEO SERVERS

Some companies are betting that entertainment will create a mass consumer market in cyberspace. Applications such as movies on demand and interactive games will require powerful multimedia servers.

PUBLISHING PROGRAMS

Publishers looking to move their digitized content to the Net need tools to help them create and maintain compelling outposts in cyberspace.

RETAIL SYSTEMS

All sorts of companies are rushing to hawk their wares in cyberspace, setting up electronic malls and storefronts.

ELECTRONIC COMMERCE

Banks and software companies see electronic banking as a big consumer market. To attract businesses to the Net, they are working on a range of projects to make networks secure.By Amy Cortese, with John Verity, in New York, Russell Mitchell and Richard Brandt in San Francisco, and bureau reports